Three Essays on Financial Decision-Making of Older Households

Financial decision-making;Portfolio choice;Wealth;Economics;Finance;Social Sciences (General);Business and Economics;Social Sciences;Economics

Lee, MinjoonCaplin, Andrew ;

University of Michigan

关键词: Financial decision-making;    Portfolio choice;    Wealth;    Economics;    Finance;    Social Sciences (General);    Business and Economics;    Social Sciences;    Economics;   

Others  :  https://deepblue.lib.umich.edu/bitstream/handle/2027.42/133264/minjoon_1.pdf?sequence=1&isAllowed=y

瑞士|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

With the shift from defined-benefit to defined-contribution pension plans, good portfolio management becomes crucial for sustaining financial well-being in retirement.Using the Vanguard Research Initiative (VRI), a novel linked survey-administrative dataset, this dissertation examines various aspects of older households’ portfolio choices. The first chapter investigates the effect of late-in-life risks on the portfolio choices of older households.Older households face health-related risks, including risk of being in need of long-term care and mortality risk.Portfolio choice depends on the interaction between these health-related risks and household preferences for long-term care and bequests.Using the VRI, this chapter finds that the desire to have enough resources for long-term care and bequests are overall strong but also heterogeneous across households.The estimated relationship between actual stock share of households and the strength of these preferences is qualitatively similar but quantitatively much weaker compared to the predictions from the life-cycle model with the estimated preference heterogeneity.The second chapter studies the relationship between stock share and expectations and risk preferences.The VRI survey allows individual-level, quantitative estimates of risk tolerance and of the perceived mean and variance of stock returns.Estimated risk tolerance, expected return, and expected risk have economically and statistically significant explanatory power for the distribution of stock shares across households.The results imply that household portfolio choices respond to individual-level differences in preferences and beliefs proportionately with the predictions of benchmark theories, but that the response of portfolios is substantially attenuated relative to theoretical predictions.The third chapter discusses what makes the VRI more suitable for answering research questions such as those in the first two chapters of this thesis.First, it has a comprehensive survey measure of wealth, based on an account-by-account approach.The accuracy of this measure is validated by comparison with the administrative records.Second, it has ample observations of older households in a wealth range relevant for research on key financial decision-making issues.To illustrate the value of the VRI, this chapter examines the non-linear relationship between wealth and expected retirement date.